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Planes, Trains, And Automobiles: Sometimes Bailouts Work

In today's New York Times, David Sanger analyzes President Obama's plan for the ailing domestic auto industry. And the historical precedents, Sanger suggests, are not encouraging: "In the past, the United States government had briefly nationalized steel makers and tried to run the railroads, with little success."

I claim no particular expertise on either of those episodes. But Phillip Longman, a fellow at the New America Foundation, does. And in the latest edition of the Washington Monthly, he argues that the railroad takeover was actually a great success:

here is a bright shining example from not so long ago of government bureaucrats engineering the revival of an industry easily as troubled as today’s automakers and, if anything, more central to the economy. And it all turned out better than anyone dared hope, with a dazzling return to profitability. It is the story of the railroad industry, and while the parallels with today’s auto industry are not exact, they are close enough to provide many useful lessons. Its example suggests that, as the automakers return to Washington for a second round of assistance, the greatest danger may well be not that government will intervene too much, but that it won’t intervene enough

Nor is this an isolated example, according to Longman:

the federal government has quite an impressive record of rescuing institutions considered too big to fail. In addition to almost routine workouts of failed banks conducted in good and bad times by the Federal Deposit Insurance Corporation and other regulators, the list includes many large industrial companies as well. In 1971, for example, Congress extended emergency loans to failing aircraft builder Lockheed and wound up not only saving a company vital to America’s national defense and export manufacturing base, but earning a net income for the Treasury of $5.4 million in loan fees.

None of this means Obama's plan for the auto industry is sure to work. But the idea that government can't intervene successfully to rescue a dying industry seems to be pretty off-base.

--Jonathan Cohn